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750,000 Californians Projected to Lose Unemployment Benefits on December 26th Because of Federal Inaction

Sacramento, November 19th — A new analysis projects that nearly 750,000 Californians will stop receiving their unemployment insurance (UI) benefits by the end of next month when key provisions of the CARES Act expire. Most of these people (583,000) will lose benefits because of the so-called “PUA cliff” on December 26th, when a federal program (Pandemic Unemployment Assistance) is currently set to expire. Another 166,000 people currently receiving regular UI will be pushed out by the expiration of a provision of the CARES Act that provided an extra 13 weeks of extended benefits to unemployed workers (Pandemic Emergency Unemployment Compensation). CPL projects that in January 2021, there will be $173 million fewer federal dollars (via UI benefits) coming into California’s economy every week as a result ($131.7 million less from PUA expiring; $41.5 million less from PEUC expiring).

“When Congress passed the CARES Act last March, they only authorized the Pandemic Unemployment Assistance (PUA) and Pandemic Emergency Unemployment Compensation (PEUC) programs through December 26th, perhaps in anticipation of our country and the economy having recovered by now. Given the recent surge in COVID-19 cases, and the business restrictions that accompany them, allowing these programs to expire will have a devastating effect on workers and their families,” explains Till von Wachter, a co-author of the analysis, UCLA economics professor and faculty director at the California Policy Lab. “Surviving on unemployment benefits has already strained the budgets of many Californians, and past evidence shows that consumption declines steeply when benefits exhaust. Congress allowing these programs to expire is both hard-hearted and economically self-defeating: if workers stop receiving these payments, there will be a cascade of impacts on landlords, small businesses, and the rest of the state’s economy,” he explained.

The analysis by the California Policy Lab finds that the number of Californians receiving unemployment remains alarmingly high, with more than 3.3 million people (about 17% of the state’s labor force) receiving benefits in the week ending October 17th. There is also considerable churn in and out of the UI program, reflecting ongoing economic uncertainty. Additional claims by workers that had exited UI to take a job but were laid off again drove initial claims above the peak level experienced during the Great Recession and now represent 80% of initial claims. At the same time, the exit rate from the program has risen, and the total number of individuals receiving UI benefits has steadily fallen since early August. The analysis was conducted by the California Policy Lab at UCLA and the Labor Market Information Division at the California Employment Development Department and is the eighth released since the start of the pandemic.

Key research findings:
Second “cliff” in May 2021: An additional 390,000 regular UI claimants are projected to stop receiving their benefits in May 2021 as additional extensions under the Federal-State Extended Duration (Fed-Ed) begin to be used up. If current conditions persist between now and May, projections indicate nearly one-fifth of current regular claimants are likely to have exhausted benefits prior to finding work, though that share is even greater for Black claimants, with more than 1 in 4 expected to have used up their benefits by mid-May.

Racial disparities persist: Over 83% of the Black labor force has filed for unemployment benefits since the beginning of the pandemic in mid-March, and in the week ending October 17th, about one-third of the Black labor force filed a continuing claim. Both of these statistics are nearly twice the state-wide average. The pandemic’s racially disparate economic impacts have also appeared in expectations among claimants about being recalled to work, with Black claimants having lower expectations that they’ll be recalled to work.

Impacted industries: In September, the Accommodation and Food Services Industry accounted for nearly a quarter of initial claims, and about 1 in 5 recent continuing claims was paid to a worker in this industry. Denials due to excess earnings (from working) remained low, whereas a substantial 17% of UI payments to workers from this industry were for partial UI, a sign that employers may be using hours reductions rather than permanent layoffs to combat uncertainty.

The analysis is based on analyzing initial unemployment insurance claims and continuing unemployment insurance claims from before the COVID-19 crisis impacted the labor market), through the start of the employment crisis in mid-March (when initial UI claims increased dramatically), up through October 31st, 2020. The projections about the rate at which individuals exit UI assume that current economic conditions will persist. A more detailed explanation is available in the Technical Appendix on CPL’s website (including a comparison to projections from other reports).

The analysis complements traditional survey-based indicators on the labor market, which have detailed information but large time lags and lower frequently, and to weekly publications of the number of total UI claims, which have minimal time lags but which lack the detail available in this analysis.

The California Policy Lab creates data-driven insights for the public good. Our mission is to partner with California’s state and local governments to generate scientific evidence that solves California’s most urgent problems, including homelessness, poverty, crime, and education inequality. We facilitate close working partnerships between policymakers and researchers at the University of California to help evaluate and improve public programs through empirical research and technical assistance.

The Labor Market Information Division (LMID) is the official source for California Labor Market Information. The LMID promotes California’s economic health by providing information to help people understand California’s economy and make informed labor market choices. We collect, analyze, and publish statistical data and reports on California’s labor force, industries, occupations, employment projections, wages and other important labor market and economic data.

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